How is cut timber taxed?

How is cut timber taxed?

Generally, the maximum long- term capital gains rate for timber is 15 percent (for taxpayers in the 10 or 15 percent ordinary income tax brackets, the maximum long-term capital gains rate is 5 percent).

How do I calculate cost basis for timber sale?

The basis of the timber sold is determined by calculating the “allowable basis” of the timber sold. This amount is determined by multiplying the number of MBF sold by the depletion unit for your timber. The depletion unit is the basis of the timber in the year sold divided by the total MBF of timber you own.

How is timber depletion calculated?

Depletion Unit – Your depletion unit is the cost per unit of volume. It is determined by dividing the cost basis or adjusted basis of the timber by the total volume of timber on the tract of land represented by the account.

Are timber proceeds taxable?

When you sell timber, your revenue will either be taxed as Ordinary Income or Capital Gains. The tax rate for ordinary income is higher than capital gains tax rates.

How are timber royalties taxed?

Royalties are generally reported on IRS Form 1099 Misc and are taxed as ordinary income. However, timber royalties are subject to capital gains treatment under IRC Sec. 631(b) and as such Form 1099S is to be used, not 1099 Misc., IRS Announcement 90-129 [90-129 I.R.B.

Is selling timber taxable?

What is the depletion rate for timber?

To calculate the depletion unit rate, divide the original basis — or the adjusted basis, if the timber has grown or changed in some other way over time — by the current volume in the account: $49,819.60 ÷ 19,000 board feet = a depletion unit rate of $2.62 per board foot.

Is timber considered farming?

If the profit motive is not met, your timber may be considered a hobby rather than business (losses from hobby activities are not deductible). Finally, timber is generally not treated the same as a business of farming for tax purposes. Certain tax provisions for farming may not be available for timber.

How do you account for timber sales on tax return?

You report the sale expenses on the new Form 8949 and Form 1040 Schedule D. It is prudent to file Form T (see page 25). Timber sale expenses are fully deductible from the sale proceeds. If your timber holding is an investment, report timber sale expenses on the new Form 8949 and Form 1040 Schedule D (see page 7).